WYNN: VOLUME SHARE UNDER PRESSURE TOO

When we get the August detail later this week, the numbers will show volume share erosion. The pressure should continue.

We’ve written a lot recently about the diverging market share trends of some of the Macau participants, particularly Wynn and MPEL. Hold percentages can fluctuate significantly month to month and we are pretty sure hold had a big impact in August. However, at least for Wynn, there is a little more at play here and it is worth watching.

We should get the August monthly detail sometime later this week, which should show inadequate gaming volume growth from the opening of Encore. Combined with the low hold percentage we wrote about last week, disappointing relative volumes will contribute to another month of sub 14% market share.

The following chart shows Wynn’s monthly market share in Macau over the last two years. Following the mid-April opening of Encore, market share peaked at 17.4% in June but dropped precipitously to 15.0% in July. Most of that was hold but a potential sign of trouble emerged; some of the decline was also volume related as Rolling Chip share declined 60bps sequentially.

August will magnify that theme and that’s the part that should trouble investors. We think Wynn’s RC volume share stays low and possibly falls from July. So what’s going on? In July, it looked like Galaxy and MPEL were a little more aggressive in compensating the junkets. That may have continued this month but we think the bigger thief may actually be MGM. Apparently, a big Wynn VIP operator, “David Star”, opened up at MGM and may be moving some business over there. This would undoubtedly be the work of the new head of VIP ops, Mr. Kwong, who doesn’t officially start until September but is on site already. As we’ve written about, Mr. Kwong is a top line guy focused on stealing VIP business. With Wynn right next door with a huge junket business, the opportunity is there.

In addition to a heightened MGM VIP effort, Wynn is at risk from LVS. LVS has said publicly that they will be ratcheting up efforts to grow VIP share. To our knowledge, that effort has not yet begun. With MGM already making headway and LVS soon to try, look for the narrative to turn to Encore and its seemingly lack of incremental contribution.

Sands' Acting CEO Leven still hopes to open sites 5 & 6 before 4Q 2011 as "there is much we can do to catch up." Sands has warned that the delayed opening will only be viable “once we have sufficient labor to ramp up our construction activity to requisite levels”.

"THOSE WHO ARE NOT HAPPY CAN GO BACK HOME:" MACAU LABOUR AFFAIRS HEAD macaubusiness.com

Shuen Ka Hung, the director of the Labour Affairs Bureau said, "If the worker thinks the conditions that the employer is offering them are not sufficient or if they feel they are being mistreated, they can always go back to their homeland to find another job." Mr. Shuen said that the Macau government believes it is possible for both the employers and the workers representatives to reach a “basic consensus” over the imposition of a minimum salary, which would include imported workers, in Macau by next year.

The Monetary Authority of Singapore, the Ministry of Finance and the Ministry of National Development said in a joint statement that the government will introduce three new measures to "temper sentiments" in the private property market and "encourage greater financial prudence among property purchasers." The new measures are: 1) raising the holding period of the seller's stamp duty from one to three years; 2) LTV limit for those with more than one outstanding housing loan will be lowered from 80% to 70%; 3) minimum cash payment increased from 5% to 10%. Singapore’s property market would form a bubble if the current momentum continued, said Mah Bow Tan, Minister of National Development. The measures will take immediate effect on August 30.

Meanwhile, Prime minister Lee said Singapore would limit its number of foreign workers to a third of the working population. About 80,000 foreign workers will be added in 2010, fewer than the 100,000 estimated earlier, he said. Mr. Lee also said the two IRs have helped add 20,000 jobs and will contribute tax revenues to the government's coffers.

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08/30/10 10:04 AM EDT

R3: NKE, PSS, Barefoot Running, and more…

R3: REQUIRED RETAIL READING

August 30, 2010

Bold move by Nike in securing automatic lacing patent – remember the ‘Air McFly’ in Back to the future? Anecdotes on Sperry and Saucony remain positive. Real estate price divergences are becoming a reality.

RESEARCH ANECDOTES

- Price disparity between high-end real estate locations and just about anywhere else continues for retailers. While some management teams have waited for rates to drop at A center locations, the reality is that elevated prices are likely to persist. J.Crew CEO Mickey Drexler surrendered that his team has “now accepted that” as the company looks to ramp store growth. On the other hand, B and C locations remain highly flexible to negotiations.

- Building on the success of its initial Kardashian launch, BEBE highlighted that inventory investment doubled for the second line in April, which continues to sell through at a similar rate. With the third line coming in September, stakes are even higher with the line now expanding beyond dresses to include sportswear layering product (i.e. pants, shirts, jackets, etc.).

- Add another layer to the deep discount value store hierarchy with Goodwill now looking to expand its footprint. Management recently commented that they expect to open five stores a year until 2014 – a noteworthy commentary for landlords given the higher than average traffic these stores typically generate.

- In a society increasingly demanding of instant gratification, it was only a matter of time before designers started offering lines straight off the runway - Burberry just happens to be the first. As part of its Prorsum collection to be shown in New York on September 13th, consumers willl be able to purchase select merchandise online and receive it within just 6-8 weeks. With online and mobile retail purchasing on the rise, you can expect designers to pick up on this trend quickly.

OUR TAKE ON OVERNIGHT NEWS

Nike Secures Automatic-Lacing Patent - Nike Inc. has secured a patent with the World Intellectual Property Organization for "automatic lacing system." Many stories circling around the Internet linked the product to the footwear worn by Michael J. Fox's character Marty McFly in the 1989 film "Back to the Future II." <sportsonesource.com>

Hedgeye Retail’s Take:We kid you not – take a look at the illustration from the patent application below as well as these prototype demos for kicks. Perhaps it’s a bit ironic with Nike’s CEO Mike Parker on the September cover of FastCompany magazine titled “The World’s Most Creative CEO”. Either way, these “Air McFlys” are the latest example of just how deep the Beaverton brain trust runs. While some may argue this takes innovation to the extreme, you don’t get dubbed “the most creative” without taking bold shots from time to time.

Key Items Out of Atlanta Shoe Market - After a slow summer season, retailers at the Atlanta Shoe Market, held Aug. 13-15, told Footwear News they were depending on must-have items to propel sales in the coming season and into next spring. Todd Hill, VP of Hills Shoes in Cana, Va., noted that he was sticking with current bestsellers, such as Merrell, for spring ’11. Likewise, Saxon Shoes of Virginia, is going deeper with customer favorites such as The North Face which has been a big sales driver in the fall with boots and backpacks. Vibram FiveFingers and Sperry Top-Sider were two other brands that were high on retailers’ wish lists in Atlanta, though several buyers complained that Sperry was only accepting future orders due to overwhelming demand. <wwd.com/footwear-news>

Hedgeye Retail’s Take: Isn’t it amazing how Sperry is truly on fire, but no one really gives a hoot? Ditto for Saucony. We’ll have a PSS note out later today that adds context.

OR Panel Weighs In On the Barefoot Craze - As performance product continues to ignite the athletic footwear market, execs are betting that consumers are willing to pay more for less, according to a panel of experts at the Outdoor Retailer show, moderated by Footwear News. Their take: Barefoot, minimalistic and lightweight footwear styles are leading the running market, re-engaging consumers and spurring interest in running. “I’ve been selling shoes for 17 years, and I’ve never seen a movement like this, where people are so interested in how to run,” said Christopher Peake, director of performance for Henderson, Nev.-based Zappos Merchandising Inc., part of Zappos.com. There’s been a lot of marketing, especially in the toning and the wellness market, that has really driven consumers to come to these categories. The book “Born to Run” and the adoption of Vibram FiveFingers by a much wider population really kicked things off in a big way last summer. And with the recession, there were a lot of people scaling back to basics, stripping things down and thinking about products differently. <wwd.com/footwear-news>

Hedgeye Retail’s Take: This statement is both comforting and ridiculous at the same time. First off, what is currently being billed as a ‘toning shoe’ does NOT, I repeat DOES NOT teach you how to run. On the flip side, Born to Run is an exceptional book, and it truly is a motivator for us to run the way mother nature intended. Barefoot running definitely works – a few thousand years of our ancestry can prove that. I’m surprised Nike hasn’t made a bigger push with its ‘Free’ technology, which was designed to mimic barefoot running. Keep your eyes peeled there.

Shoemaking Gradually Shifts to Eastern Europe as Costs Hike - Due to hiking production costs, Austria’s footwear production dropped by 20% to 1.8 million pairs in 2009, with shoemaking companies beginning to transfer their production to mostly Eastern Europe. <fashionnetasia.com>

Hedgeye Retail’s Take:In light of EU anti-dumping measures on China expiring earlier this year expect this trend to continue as the competitive environment gets increasingly more challenging for domestic manufacturers who have historically exported ~70% of footwear to Eastern European countries.

Watch Maker Cartier Files More Lawsuits Against Web Sites - Three weeks after suing private sales site HauteLook.com, Cartier set its sights on two other flash Web sites. The company alleged that ILS Holdings LLC and Swiss Watch International Inc., owners of EditorsCloset.com and IvoryTrunk.com, sold “refurbished and/or damaged” Cartier watches. The watchmaker said the defendants did not disclose to their customers that the products were not backed by Cartier’s manufacturer’s warranty. The plaintiffs seek injunctive and monetary relief. <wwd.com/business-news>

Hedgeye Retail’s Take:Reminiscent of Tiffany’s battles with eBay over authenticity, the threat of brand dilutive activities online has unfortunately become the price of business for luxury retailers. With little help from the government policing counterfeit product, efforts to curb disingenuous online activity will remain squarely on the shoulders of the retailers looking to maintain brand integrity.

Sears Looks to Enhance its Online Shoe Offering - The retailer has just launched the Sears Shoe Experience website, where consumers can make purchases and get trend advice in the fashion, kids’, fitness and work categories via blogs hosted by Sears.com. Among the features on the site is a personal shoe-shopper program, where customers can receive personally selected shoes within 24 hours. The retailer also is tapping into social media on Facebook, Twitter, YouTube and Vimeo. <wwd.com/footwear-news>

Hedgeye Retail’s Take:Better known for selling appliances, Sears is the latest mass-merchant looking to capture a piece of the footwear business as Wal-Mart reduces its involvement. Not the most likely benefactor, but a sizeable one worth watching…

Hedgeye Retail’s Take:This is only the beginning - expect ‘transition/distribution’ delays to be the scapegoat du jour on Q3 calls.

Oriental Trading Files For Bankruptcy - Oriental Trading Co. Inc. is seeking Chapter 11 protection to reorganize debt. The retailer, which sells party and school supplies, crafts and gifts, has accumulated loans of nearly $272 million.Oriental Trading, which operates such e-commerce sites as OrientalTrading.com and TerrysVillage.com, didn’t list specific totals of its assets and debts. But the court filing does reveal that Oriental Trading owes significant amounts to its lenders and several key e-commerce and delivery companies. <internetretailer.com>

Hedgeye Retail’s Take:This is notable for the simple fact that it’s been a while since we’ve seen a retailer file.

The Finish Line Reduces Page Load Times by 50% - The Finish Line Inc., an online retailer of athletic shoes, has reduced page load times by 50% after implementing the Dynamic Site Accelerator from Akamai Technologies Inc. The technology makes web pages load faster by relying on web servers located across the country and world. For instance, a server located in Boston would deliver site data to consumers in that area, while servers located on the West Coast would handle shoppers there. <internetretailer.com>

Hedgeye Retail’s Take:With spending primarily in back-end capabilities over the last few years, the company is shifting investments toward improving consumer facing, front-end functionality. FL, take note.

Zara to Sell Online Commencing Next Week - Zara is finally hoping onto the e-commerce bandwagon to be selling online to countries including France, Germany, Italy, Portugal, Spain, and the UK starting September 2. <fashionnetasia.com>

Hedgeye Retail’s Take: For a company known for lightning quick product turnaround, it’s hard to believe they’re just stepping into the world of e-commerce. With less than 50 stores in the U.S. this could prove disruptive for domestic fashion retailers indeed.

6. Journal of Commerce Commodity Price Index– Last week, the index fell 3 points, closing at 9.16. This series last crossed zero on August 12th, 2008. Conclusion: Negative.

7. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds. Last week yields rose 70 bps, ending the week at 1145 bps versus 1075 bps the prior week. Greek bond spreads are now just 84 bps off of their crisis-period highs in May 2010, when spreads topped out at 1229 bps. Despite an absence of media coverage, the market remains concerned with the prospect of a sovereign default. Conclusion: Negative.

8. Markit MCDX Index Monitor– The Markit MCDX is a measure of municipal credit default swaps. We believe this index is a useful indicator of pressure in state and local governments. Markit publishes index values daily on four 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. Our index is the average of their four indices. Spreads rose last week, closing at 225 last Thursday versus 220 the prior Friday. Pricing data was not available for last Friday. Conclusion: Negative.

Joshua Steiner, CFA

Allison Kaptur

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08/30/10 08:22 AM EDT

CHART OF THE DAY: G7 UNEMPLOYMENT RATES

One good metric for evaluating the economic leadership and their ability to know what they are pitching is the unemployment rate. In the chart below, we’ve highlighted the unemployment of the G-7 over the past three years. In order to further emphasize this point, we’ve highlighted directly below the increase (a positive number), or the decrease (a negative numbers), of unemployment for these nations over the past three years.

THE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - August 30, 2010

As we look at today’s set up for the S&P 500, the range is 31 points or 2.59% (1,037) downside and 0.32% (1,068) upside. Though off their earlier highs, equity futures are still trading above fair value in what has been a quiet pre-market session highlighted by news that Intel will acquire Infineon's wireless unit, and Sanofi-Aventis will acquire Genzyme.

Anheuser-Busch InBev (BUD) may rise as the company boosts earnings with higher sales and reduced costs, Barron’s reported.

ASIA - Nikkei +1.76%; Hang Seng +0.68%; Shanghai Composite +1.61% - Asian markets followed last Fridays move, though some of the optimism was muted when the Bank of Japan disappointed investors in the country with its lunchtime announcement of tepid measures to weaken the yen.

EUROPE - FTSE 100: closed; DAX: +0.11%; CAC 40: (0.29%) - With London closed for the Summer Bank Holiday and the Continent enjoying the last week of August, Europe is quiet this morning. While M&A news and the BOJ's announcement that it will keep the overnight call rate target unchanged at 0.1% originally buoyed markets marginally higher, the CAC is now down on the day

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